A Method for Working with Sign Restrictions in Structural Equation Modelling |
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| Authors: | Sam Ouliaris Adrian Pagan |
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| Institution: | 1. Institute for Capacity Development, International Monetary Fund, Washington, DC, USA;2. Melbourne Institute for Applied Economic and Social Modelling, University of Melbourne, Melbourne, Australia;3. School of Economics, University of Sydney, Sydney, Australia |
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| Abstract: | The paper sets out a method for handling sign restrictions in systems of simultaneous equations which are only partially identified. These sign restrictions might apply to either structural equation parameters or functions of them such as impulse responses. Initially a range of values for the unidentified parameters are generated and then the role of sign restrictions is to narrow the range. It is simple to apply and can be handled in packages such as EViews and Stata. Examples are given of how to implement it in a number of cases where there are both parametric and sign restrictions. |
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